Energy & Capital

Renewable Energy Growth Opportunities

More Troubles for Coal

The big news this week was the International Energy Agency's (IEA) prediction that the U.S. will overtake Saudi Arabia as the world's largest oil producer by 2020.

And there's no doubt about it: This is a monumentally huge deal, and it deserves all the coverage it continues to get.

But the IEA made another prediction this week that was also pretty big, yet it wasn't followed up with the same enthusiasm, though it should have been...

On Monday, the IEA published the following statement:

A steady increase in hydropower and the rapid expansion of wind and solar has cemented the position of renewables as an indispensable part of the global energy mix.

The IEA also claimed renewable energy will provide nearly one-third of the world's energy needs by 2035, and is now set to rival coal as the main generator of the world's electricity as technology costs fall and subsidies rise.

Now, I don't know if that's going to happen.

What I do know is two things are going to unfold between now and 2035 that make this a very probable outcome...

First, manufacturing costs for renewables will continue to plummet. From solar cells to high-performance batteries to wind turbines, increases in efficiencies and rapid declines in production costs are a lock.

Second — and probably more influential in the near-term — is that continued subsidies on a global scale will facilitate the whole transition.

Of course, this is not how a real free market is supposed to operate. But let's face it; a free market has never existed when it comes to energy. It didn't exist when coal was king, it didn't exist when Detroit ruled the automotive world, and it won't exist when the global landscape is peppered with solar panels, wind turbines, and electric cars.

That's just how it is. It's how it's always been.

And while I've never believed governments are better than real free markets when it comes to dictating winners and losers, I've also never turned down a profit because it was facilitated by government support. Neither should you.

While opportunities in renewable energy will continue to be few in the coming year, the more you know about the trajectory of renewable energy growth today, the quicker you'll be able to pounce when it's time to do so.

Soured Subsidies

IEA projections for renewable energy subsidies show a rise from $88 billion in 2011 to $240 billion in 2035. A number of governments are also putting into place mechanisms that would allow subsidies to be adjusted over time to coincide with declines in production costs and increases in capacity.

Of course, who knows how effective those mechanisms will be...

After all, fossil fuels landed $523 billion in support in 2011 alone. When it comes to government support, once it's there, it's hard to get rid of.

But maybe I'm wrong. Certainly Germany continues to phase out its generous support for solar as capacities rise. And I suspect China will eventually be forced to end its support of its solar industry, because at some point the Middle Kingdom will simply be unable to prop it up any longer.

I also think there will be more scrutiny for both renewables and fossil fuels going forward as ponying up this kind of scratch year after year just isn't sustainable. Eventually, something will have to give.

But while Germany, Spain, and the U.S. begin to back away from subsidies for renewables, Japan, India and parts of Africa are just getting started...

30 Percent by 2035

Japan has already been providing feed-in tariffs of $0.52/kWh for solar. This is huge, and it will certainly facilitate the country's transition away from nuclear and to renewables (although I'm still unconvinced nuclear is dead in Japan).

Still, there's no doubting Japan's solar capacity is going to grow dramatically over the next few years.

India is still expected to have a full 20 gigawatts of solar installed by 2022.

Just last month, Aditya Birla Group announced a $1.14 billion investment in a 100 megawatt pipeline of solar projects.

India is also ponying up $4.1 billion to help spur the production of electric and hybrid vehicles — and ReNew Power, a Goldman Sachs-backed firm, is expected to invest more than $1.1 billion in a number of wind energy projects in that country.

(All of these billion-dollar investments, by the way, were announced this year — during one of the worst economic climates ever.)

As I've also mentioned in the past, Africa continues to attract renewable energy investment.

You see, Africa is a continent with limited electric infrastructure already in place. More than 80% of African citizens don't even have access to electricity. Basically, many parts of Africa are starting from square one.

And this means they can build an infrastructure that won't have to rely exclusively on fossil fuels.

Of course, natural gas and coal will be a part of the mix. That's a given. But thanks to Africa's immense solar and wind resources, the demand for long-term economic stability will dictate those resources be utilized to their fullest extent.

Africa is still the poorest continent on the planet, but its economy is picking up steam. And in order for growth to continue, energy demands will intensify.

With an abundance of land that can be used for solar and wind farms — and with renewables actually being cheaper than conventional sources in many regions — this continent is ripe for renewable energy opportunities.

Point is, on a global scale, renewable energy growth continues.

Sure, the United States is about to end some serious subsidy support for wind energy... and in Europe, it's becoming harder and harder for a number of countries to continue providing support for solar...

But the world's a big place, and our collective energy demands are massive — and continuing to grow by the second.

So, will renewables provide nearly one-third of the energy required to power the globe by 2035 as the IEA has predicted?

Who knows?

I certainly don't think it's out of the question or a particularly extreme prediction...

But rest assured, renewables are here to stay.

And regardless of where the action is, we'll be there, looking to make a few bucks. Because that's what we do. It's what we've always done — and with much success.

Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor''s page.

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